The wheels came off the Canadian dollar rally bus yesterday, and the currency crashed and burned.
USD/CAD soared from $1.2481 to $1.2622 as a wave of risk-aversion sentiment washed over markets. There wasn’t a specific catalyst for the move, but a lack of actionable, top-tier U.S. economic data, and the Federal Reserve’s "cone of silence," ahead of next weeks Federal Open Market Committee meeting, left markets vulnerable.
News of soaring coronavirus deaths in India and reports that the Japanese government planned to declare a state of emergency for Tokyo and Osaka gave rise to fears that the Asia portion of an expected global economic rebound would be delayed. That led to safe-haven demand for Japanese yen and U.S. dollars. Wall Street wobbled on disappointing earnings, then the increase in negative risk sentiment knocked them lower.
The negative sentiment continued in Asia, and the major equity indexes closed with losses led by a 2.0% drop in Japan’s Nikkei 225 index. European traders shrugged off the COVID-19 woes in Asia, and prices were bolstered by better than expected Eurozone corporate earnings. European bourses are trading higher, while Wall Street futures are flat.
Canada is in the market spotlight today. March inflation data, the Bank of Canada monetary policy statement and quarterly Monetary Policy Report (MPR) are on tap.
Headline Consumer Price Index is expected to rise 0.6% m/m compared to 0.5% in February. The BoC monetary policy statement will overshadow the results. Analysts expect the Bank will announce it is tapering Quantitative Easing (QE), and they expect to see upgraded growth forecasts in the MPR report.
EUR/USD rallied from $1.2037 to $1.2079 yesterday, and then the wheels fell off the bus. Prices plunged to $1.2022, then extended the losses to $1.2002 overnight, opening near the bottom in New York.
GBP/USD suffered a similar fate as EUR/USD. Prices peaked at $1.4007 on Tuesday and dropped to $1.3912 just before New York opened. U.K. inflation rose 0.7% y/y in March compared to 0.4% y/y in February, but traders ignored the results.
AUD/USD and NZD/USD suffered from risk aversion sentiment. AUD/USD fell to $0.7701 from $0.7815 yesterday. Australian Retail Sales were better than expected (actual 1.4% m/m vs February -0.8%). NZD/USD tracked AUD/USD price action while dismissing the Q1 CPI report (actual 1.5% q/q vs forecast 1.4%)
The U.S. economic calendar is empty.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
